US ruled to be non-compliant over cotton subsidies at the WTO

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The WTO Dispute Settlement Panel issued its ruling yesterday on whether the US had complied with the previous decision against US cotton subsidies. It found that generally the US had failed to make its cotton regime consistent with its WTO obligations.

This comes as the latest episode in an ongoing dispute between Brazil and the US that was launched in 2002, when Brazil took the US to the WTO’s Dispute Settlement Body over the subsidies paid to cotton producers. These subsidies, around $3.9 billion a year, have been argued to depress world cotton prices by up to 26%, which has had a catastrophic impact on the cotton producers of West and Central Africa. The original ruling was given in 2004 and went largely in favour of Brazil. This required the US to make substantial alterations to its subsidy regime to make it consistent with WTO obligations.

Yesterday’s ruling is the follow-up report on whether the changes the US made had been sufficient to bring it into compliance with the original panel’s findings. Its key points found that:

  • US marketing loans and counter-cyclical payments  continued to have a significant suppression effect on prices that was inconsistent with the Subsidies and Countervailing Measures agreement of the Uruguay Round, and the US had therefore failed “to take appropriate steps  to remove the adverse effects or … withdraw the subsidy” as was required by the original ruling against them.
  • US export subsidies continue to be in excess of the commitments made in the Agreement on Agriculture. Export credit guarantees were also ruled to be inconsistent with the Subsidies and Countervailing Measures agreement.

The panel therefore ruled that the US must withdraw the prohibited subsidies without delay and bring its measures into conformity with the Agreement on Agriculture.

So what happens now? Within 30 days of the report’s publication, the US must state its intention to comply with the findings. They will then be given ‘reasonable time’ to change the measures. If it still fails to change the measures within this time, Brazil can seek compensation in the form of raising duties on US exports. These can continue until the US brings itself into compliance with the panel’s ruling. Brazil is a sufficiently large economy with sufficient trade with the US for this to be an effective measure.

For the cotton exporters of Africa things are less positive. While the ruling is clearly good news for them in that it continues the pressure on the US to remove its cotton subsidies, there will still be no quick end to US subsidies. There is a long way to go before their cotton growers will see any improvement in world prices.

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